Telkom has over-exaggerated the impact the proposed penalty it is facing would have on the South African economy, says the Competition Commission.
During closing arguments in the case against Telkom - for allegedly abusing its dominant position and cutting downstream value-added network service providers out of the market - advocate Martin Brassey, for the commission, yesterday said the impact on Telkom and the South African economy is over-exaggerated. “In cases where a substantial penalty is imposed, the penalty can be paid over time.”
The commission wants Telkom to be fined up to R3.5 billion, but Telkom has said a figure of R20.5 million is more appropriate. The case is being argued before the Competition Tribunal.
Bleak picture
The company said during its closing arguments that a fine of R3.5 billion, as proposed, would have disastrous consequences for the South African economy and government.
“It is no secret that Telkom's financial performance has been under extreme pressure over the past few financial years.” Its annual report for the 2011 financial year shows declining fixed-line revenues and shrinking profits. Profit from continuing operations in 2010 was R3.3 billion and in 2011 it was R2.4 billion.
Telkom's revenue also declined by R2 billion. Its net profit has declined from R5.691 billion in 2007 to R2.23 billion in 2011. “Its published results for the half-year ending 30 September 2011 confirm this bleak picture. A penalty of the magnitude sought by the commission will, therefore, exceed the company's profit by 56%. This will be catastrophic for Telkom. Even more serious, this will impact on its continuing operations and irretrievably jeopardise its viability.”
The company adds that since it is still the largest supplier of fixed-line communication networks upon which banks, financial institutions, government departments, the defence force, police and industry rely, the impact will be severe for the South African economy as well.
However, the commission says affordability and the impact of the penalty on Telkom are not factors that the tribunal has to consider legally. “The decline in net profit that Telkom is putting forward is primarily the result of its investment in a new business venture - 8ta - and not its main business.”
Behaviour alternative?
Telkom said that if an administrative penalty is imposed, it should be nominal or symbolic in nature.
The tribunal has asked Telkom to outline behavioural changes that could be considered in addition to, or in place of, a monetary penalty. Telkom has until next week to hand in its submission on this.
The case was adjourned yesterday. The tribunal will now consider the evidence and arguments presented since the hearing started in October 2011 and make its finding in due course.
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